METHOD OF MEASURING NATIONAL INCOME?

Meaning: -National income is generally defined from three angles viz. From the point of view of production, distribution and disposition. This is because National Income is always viewed at National Income = National product = National Dividend = National Expenditure i.e NI=NP=ND=NE. As there are three views of National Income accordingly, there are three methods of estimating National Income. They are.
a)      Total Output (Production Method): - (also known as Value Added Method/Inventory Method)
b)     Total Income Method: - (also known as Dividend Method/Factor Cost Method)
c)      Total Expenditure Method: - (also known as Aggregate Outlay method)



1.      Total (aggregates) Output (Production Method): -The national income is calculated on the basis of the gross value of the final production of goods and services manufactured in various sectors. i.e., primary, secondary, and tertiary, during a given period of time.
·         The primary sector is further divided in sub-sectors like agriculture, forestry, fishing, etc.
·         The secondary sector is sub-divided into manufacturing, construction, gas, electricity, etc.
·         The tertiary sector is further divided into banking, transport, trade, communication, hotels, etc.
The national income is calculated as follows:-
ü  The value of all final goods and services produced in different sectors of the economy during a year estimated at market price.
ü  (plus)The Gross Value of all Capital goods i.e. Gross Investment in the economy during a year.
ü  (plus) The Value of services rendered by the government which is measured in terms of government expenditure on purchase of various gods and services.
ü  (plus)Net Income from Exports i.e., the difference between Exports (X) and Imports (M). This may be positive or negative.
ü  (plus) Net foreign Income (NFI), which is equal to (X) – (M) + (R – P). This may be positive or negative.
ü  (minus) Depreciation or Replacement Allowances or capital consumption in the country during a year.
ü  (minus) Indirect taxes (INT) collected by the government during a year.
ü  (Plus) value of substitutes given to consumers and producers during the year.


2.      Total Income Method: -Whenever goods and services are produced in the economy, income is also generated and distributed among the factor of production. Different factors of production are paid for their productive services rendered to an organisation, thus labour gets wages, land gets rent capital gets interest and entrepreneur gets profits. The various income that included in this method are:
ü  Wages/salaries to employees.
ü  Rent of Land.
ü  Interest for capital used.
ü  Profits to entrepreneur.

3.      Total Expenditure Method: -The various sectors-the house holds sector, the business sector and the government sector either spend their incomes on consumer goods and services or save a part of their income or we can say that they spend a part of their incomes on non-consumption goods. These expenditure are grouped as: -
ü  Private Consumption
ü  Private Investment
ü  Public Consumption
ü  Public Investment.

National income = Private Consumption and Investment + Public (government) Consumption and Investment.

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